How should Investment Incentives be given? Should they be given?

This is a local saying in our geography, “All investment incentives are abused with intensive care”. Let me try to explain this expression. We encourage exports, exporters create fake documents to get incentives to get tax back. We make procedures easier in order to encourage thermal power plant incentives, then vulgar investors initiate confiscation of forest land, the agricultural population of the region uprises. We make EIA applications easier for more combined cycle power plant investments, vulgar investors use drinking water of the local people in their cooling water system and water becomes heavily polluted, not suitable for any further agricultural use.

New EIA regulations are published in the Official Gazette on 25th November 2014 with No. 29186 and entered into force. Thermal power plants up to 300 MWt (about 100 MWe) are now exempted from the application of EIA. That 300 MWt capacity is quite high. Agricultural lands, forestry, wetlands, olive groves, are protected areas named as “Sensitive Areas”. Ministry will give the final decision of the EIA Regulation. So the final decision will be in the hands of political will.

Thermal power plants must comply with environmental standards. Exemption from environmental norms should never be in question. Investment incentives are penned by well-intentioned western minds. In practice, oriental cunning heads- evil minds are engaged for loop-hopes, then in the end proper implementation of the work becomes deteriorated. Investment incentives can not be received by those who really deserve, but those who are close to the political will, get the most benefit.

EIA exemption is in unfortunate practice now. It means investor will have the exemption from the obligation to comply with local and international environmental norms. EIA exemption is definitely need to be removed. We all know that investment is not an easy process. Investors must prepare EIA and they should convince the local people. If there is no local acceptance, then this investment is not appropriate for the local people, so that this investment should cease. It is not correct to cut 6000 olive trees overnight, in order to clear the land to make ready for the thermal power plant construction. This is unacceptable. The investor who cut the grownup 6000 olive trees in one night, harmed us all.

The olive tree is mentioned in the all three holy books. Anyone who advocates importance of constructing thermal power plants, advises the importance of making the local indigenous basic design, anyone who puts money into investment, anyone who has built the power plant, were all in difficult situation in the public vote. There is no party to defend this horrible event against environment.

This irresponsible act harmed our hard earned reputation as well as our business profile. There is no justification of this act. There is no reasonable economic comparison between 500-year old olive trees, and the power plant with barely 20-30 years of lifespan. This comparison could not be made with simple arithmetic.

If a wrong practice is occured, it should then be immediately notified, corrective measures should be taken immediately. If the wind farms on open farmlands makes life unbearable with noise it created, and if locals in residential areas are complaining of noise levels, investors are to be warned to get quieter wind turbines. They should be warned that their wind turbines should not demolish the forest where they will be placed.

If there is an agricultural land seizure risk with solar investments, and if local farm people will remain without land, this should be avoided.

If the guaranteed purchase price cents per kW-hr is less that expected, they should be warned, so that the over-stimulated demand should be redirected. Market conditions should govern free competition. The consumer should be prevented from taking expensive electricity.

If you want to make an investment of thermal power plant with 1000 MW output capacity while firing imported coal, you will need at least 2,000-3,000 acres of vacant land. If yo make a false application of 300-400 acres of land for EIA application, you should be warned. “This is wrong, you need at least 2000 acres, 400 acres land is not enough for you. You can not ask public expropriation for additional land nearby. You can not get forest land, or agricultural land. You can not ask clearing land with olive trees.

Combined cycle power plant investment can not use underground water for their cooling water system, if that water is already allocated for the agricultural farmlands nearby. Otherwise investment risk premium increases due to local environmental concerns, IPO buyers impasse will end up loss of billions of dollars, while you try to save a small magnitude of that value by jeopardizing environmental norms and regulations.

If the ash dam or proper ash storage facility for a coal firing power plant is not properly constructed, if you pollute the nearby sea by deep water discharge, you should be warned, and the work should be corrected.

“I have money, why don’t I construct the power plant where I want?”, say some newcomer investors who are unaware of the sensitive environmental issues. Energy is not a priority, but environmental concern is. Having money is not enough to invest where you want. There are rules, regulations, laws, local and international environmental standards, to which we all must comply with.

New environmental equipment investments in public thermal power plants were exempted by law to be enforced until 2018. Privatized power plants get the same exemption.

Compliance with environmental norms must be put off. We give investors extended exemption from environmental investment. That is not fair, not correct.

Investors ask more exemptions at least for 3-5 more years time extension for rehabilitation expenses. They further initiate reduction of personnel expenses. Our people becomes unemployed. We face with unnecessary social mess, public tension and confusion.

With this pace enforced, we shall face more and more deforestation, reducing farmlands, demolishing of lands of olive trees. We now promote renewable energy, more wind turbines, more solar panels to be installed on empty lands. We also guarantee higher electricity purchasing rates in order to let them receive better financing terms. These incentives will serve primarily the importing equipment. Our environment will be saturated with cheap imports, poor quality, non-redundant renewable energy equipment with non-maintenance contracts.

There are incentives to promote domestic manufacturing to be implemented. We fear that those measures will be plagued by bureaucratic procedures, which will make regulations not applicable, or facilitation will be worse. Who can build a reputable turbine / generator plant in five years, construct the factory, get market share, get trust of new business credit, get orders to survive, finalize manufacturing, make erection on-site, operate and further promote domestic production? This is a dream which can not be fulfilled. We may establish assembly plants of foreign firms, and initiate partial production.

Locally designed power plant construction with local coal firing is not so easy in a few years. The measures which are taken are not so clear for encouragement of domestic manufacturing. There is a draft roadmap summary already released for public, but details are not disclosed yet.

On the other hand, our local civil contractor companies are doing heavy labor abroad in power plant constructions for neighboring rich investor countries with limited labor force. They have record level of orders. However they earn money by marketing the most basic human workmanship. They do not supply basic design. Their engineering is limited. Major foreign contractor company makes the basic design, delivers the necessary engineering, and gets the biggest share of the profit.

If an investment does not create local employment, it has no importance. Investment incentives should promote local engineering, local fabrication, local employment for site installation, and further operation and maintenance works.

Public authorities fear that if there is no proper investment incentive, then there will be no investment. This assumption is not correct. If there is proper market forces emancipated under rule of law, under free market conditions, under fair competition, there is always investment for the prosperity of all. On the other hand, if there is investment incentive then there is corruption possibility in favor of for those privileged..

It is much better not to have incentives, and let the market forces to dominate the local environment under close scrutinizing by public authorities as well as under surveillance of NGO institutions.

In our geography, we visualize that the more investment incentive measures we enforce, the more corruption we create. Therefore it is better to stop investment incentives completely. We would strongly recommend and prefer that no incentive should be provided other than current standard general tax cuts and flat electricity feed-in tariffs for energy investments.

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About the Author

Haluk Direskeneli, is a graduate of METU Mechanical Engineering department (1973). He worked in public, private enterprises, USA Turkish JV companies (B&W, CSWI, AEP), in fabrication, basic and detail design, marketing, sales and project management of thermal power plants. He is currently working as freelance consultant/ energy analyst with thermal power plants basic/ detail design software expertise for private engineering companies, investors, universities and research institutions. He is a member of ODTÜ Alumni and Chamber of Turkish Mechanical Engineers Energy Working Group.
He can be contacted at halukdireskeneli@gmail.com